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Opinion

Private equity: Sponsors need to exercise self-control

Private equity firms have large amounts they need to put to work, so market discipline might be sorely tested over the next few years.

Given the negative sentiment that has plagued Europe in recent months, the announcement of an ambitious €25 billion LBO financing incorporating a large slug of bank debt for Spanish infrastructure firm Abertis has come as very welcome news. The deal, which harks back to the days of the jumbo LBOs before 2007, could involve the firm being bought out by a consortium of La Caixa and Spanish construction group ACS (which together own 55% of Abertis) and private equity firm CVC. That fact that such a debt fundraising is even being considered has to be good news – and for a Spanish credit to boot.

CVC is rumoured to be considering injecting as much as €1 billion into the deal and roughly 14 banks are believed to be in negotiations to join it, led by Mediobanca. If this sounds extremely ambitious in the current climate that is because it is. Infrastructure is a highly attractive asset class for private equity but not surprisingly the bidding group is doing all it can to keep Abertis’s investment-grade rating and will look to sell assets to achieve this. But a debt-raising of this size is still an enormous undertaking – the most recent jumbo deal to be attempted, a $15 billion Blackstone-backed buyout of Fidelity National Information Services – collapsed when the private equity buyer baulked at the price in a reassuring sign of self-discipline.

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